Paul Reiche, Studio President and Creative Director of Toys for Bob, poses for portraits at his company's headquarters on May 28, 2014 in Novato, Calif. Toys for Bob is the studio behind the hugely successful Skylanders hybrid toy-video game series.

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Wildfire, a Skylander new to the "Skylanders Trap Team" game, is shown at the Toys for Bob headquarters in Novato.

Paul Reiche describes additions that have been made to Skylanders Trap Team at the headquarters of Toys for Bob on May 28, 2014 in Novato, Calif. Toys for Bob is the studio behind the hugely successful Skylanders hybrid toy-video game series.

The small Novato game studio created "Skylanders," the action figure-video game hybrid that in less than three years has generated more than $2 billion in sales and transformed the toy industry.

Yet as Toys for Bob celebrates its 25th anniversary, the 120-employee studio and co-founders Paul Reiche and Fred Ford are relatively unknown outside the game industry.

"Self-promotion was not part of our DNA," Reiche said. "We've succeeded pretty well just by making great games. With 'Skylanders,' we're proud of what we've done, but we want people to believe in Chopper and Food Fight and Tree Rex. They don't necessarily need to know about Paul and Fred."

Unless you're a 6- to 12-year-old - or the parents of one - you might not recognize those references to characters in the expanding "Skylanders" universe, which since the October 2011 release of "Skylanders: Spyro Adventure" has become a cash cow for Toys for Bob parent Activision Blizzard of Santa Monica.

The "Skylanders" series hit $1 billion in revenue in just 17 months and recently passed $2 billion.

The franchise has also sliced into toy giant Hasbro's once-dominant lead in action figure sales. Its success prompted entertainment conglomerate Disney to jump in to the competition with a hybrid toy-video game series called Disney Infinity.

Revolutionizing games

Moreover, toy industry analyst Lutz Muller said, "Skylanders" has ignited a revolution that will bring similar crossover technologies to traditional toy and board game makers. He said the genre could also prove a "saving grace" for struggling video game company Nintendo.

"The opportunities with this hybrid of video games and toys are incredible," said Muller, president of the industry consulting company Klosters Trading Corp. of Vermont. "The question is can 'Skylanders' stay ahead of the curve?"

In "Skylanders," players place their action figures on a device called the Portal of Power, available for major game console platforms and for PCs, which recognizes each figurine through near-field communications technology and triggers virtual battles and other adventures in the video game.

The individual action figures remember gameplay advances, so players can pick up where they left off or bring figurines to friend's homes.

The technology makes the toys "come to life," and not just when the screen is on, said Reiche, the studio's president and creative director.

"We want to have kids take their toys back to their bedrooms to continue playing with them or take them out into the world," he said. "There's tons of opportunities to make that entertaining and magical."

The success of the franchise rides on the old "razor blade" marketing model started by razor mogul King Gillette.

A Skylanders starter pack, with a portal and three action figures, lists for about $60. But once in the universe, players can unlock different characters with different capabilities by buying - or persuading their parents to buy - additional action figures, which are sold separately. And that universe now counts more than 80 action figures, including a few special-edition collector's items.

Figurines sell big

About 80 to 85 percent of Skylanders sales are the figurines, "so it's the razor blades that are selling," said Muller, who in a previous career was actually in charge of razor blade sales.

Toys for Bob employees are now working on the franchise's eighth game, "Skylanders: Trap Team," due out in October. That game will feature a new Traptanium Portal - as well as 40 new action figures.

They did take time out May 19 when Novato Mayor Eric Lucan visited the studio, inside a renovated hangar on the former Hamilton Air Force base, to celebrate the company's 25th anniversary.

During interviews last week, Reiche, 53, and Ford, 52, said they picked the company's name from a list of possibilities because it was intriguing and playful.

The office's decor is also playful. Half is outfitted like a pirate ship, with a crow's nest and riggings hanging high over cubicles separated by custom-made dividers made to look like sections of wooden hulls. The other half has a Polynesian tiki hut motif, with grass-thatched roofs over the cubicles.

Many desks are lined with "Skylanders" action figures. Some of them are so rare, even Toys for Bob employees had to bid for them on eBay.

Reiche and Ford started by making games like "Star Control," a science fiction game for Amiga personal computers and PCs running Microsoft's MS-DOS.

"We've always had same the same philosophy of being design focused," Reiche said. "Technology enables everything, but technology isn't our goal. Our goal is entertainment and the sense of building magic in the world."

Activision's role

In 2002, the studio began working with Activision, which acquired Toys for Bob in 2005. In 2008, Activision merged with Vivendi Games and asked Ford and Reiche's team to develop a new children's game based on Vivendi's "Spyro the Dragon" franchise.

"I had been throwing around this idea of toy-game interaction for a while," Reiche said. "It sort of clicked because the world of 'Spyro' is so full of cool characters. That gave us the idea for 'Skylanders.' "

But the game developers also ran headlong into the project with a "crazy ignorance," not knowing how hard it was to make physical toys, he said.

After more than a year of development, the team showed Activision Blizzard executives what they thought was a nearly finished product. But company president and CEO Bobby Kotick saw the potential for something greater, Reiche said.

"So he gave us more time and more money and said basically 'shoot higher,' " Reiche said. "I've never had someone come to me and say keep going. And he was right. That was a tremendous executive decision."

Ford said Activision Blizzard, best known by older video gamers for its "Call of Duty" and "World of Warcraft" franchises, was one of the few places where a concept like "Skylanders" could succeed.

"They have deep pockets, they have the appetite for risk," Ford said. "We could have thought of this idea as independents and never got it made."

Given the extra time, Toys for Bob made the game better, including one key improvement - enabling the action figures to store data. That means the game not only recognizes the individual action figures, but also save game data within each toy.

Topping Disney

Skylanders are still outselling Disney's offering, Infinity, by a 1.8-to-1 ratio, with Skylanders holding a 3-to-1 advantage in retail shelf space, Muller said.

"Skylanders and Infinity are both in sufficiently large market segments to do well at least for a good long while just by bringing out new action figures," he said.

But with the competition getting heavier, Reiche believes Toys for Bob needs to keep innovating to stay ahead.

"Year after year, we think our best strategy to continue winning in this genre is to radically innovate, to move so fast and so far and be so cool that there's no way that anyone can beat us," he said. "They'll follow us, but they're never going to get ahead of us."